Race to lead BoJ hots up

FORMER top bureaucrat Toshiro Muto is losing some momentum in the race to become Japan's next central bank governor, making for a more open contest, which will kick off in full force this week following Prime Minister Shinzo Abe's return from his US trip.

Muto had been considered the leading candidate to replace incumbent Masaaki Shirakawa, who leaves on March 19 after a five-year term. Muto remains on the shortlist with strong backing from bureaucrats at the powerful Ministry of Finance.

But evidence is building that the race may be closer than previously thought between Muto, Asian Development Bank (ADB) President Haruhiko Kuroda and former deputy governor Kazumasa Iwata, say officials and lawmakers familiar with the selection process.

Abe, who won a resounding election victory in December promising to finally rid Japan of nearly 20 years of deflation, wants a fresh face in the job, someone more eager to experiment with radical measures, the sources said.

"Muto is preferred by finance ministry bureaucrats, while people close to Abe want someone else," said one of the sources.

"How markets may react is important," the source said, adding that Abe may want to avoid disappointing markets already pricing in a radical makeover of monetary policy under a new Bank of Japan leadership.

His policy prescription, dubbed "Abenomics", has pushed the yen to its lowest level in more than three years.

Finance Minister Taro Aso said the new BoJ governor does not necessarily have to be someone from his ministry, leaving room to support candidates besides Muto if Abe insists on someone more radical.

Abe hardened his comments last week on the need for a new governor to have international contacts as a key qualification for the post, suggesting that he prefers someone with experience in financial diplomacy. Muto spent most of his career in domestic affairs, rising up the career ladder at the ministry of finance to become its top bureaucrat.

That will put ADB's Kuroda, who was Japan's top currency diplomat in the midst of the Asian financial crisis in the late 1990s, at the top of the list.

Kuroda is now leading the race to become nominated by the government as next BoJ governor, the major Japanese daily Asahi newspaper reported on Saturday, quoting finance ministry officials.

Kazumasa Iwata, a former deputy BoJ governor, remains a strong candidate, thanks to his fluent English, academic work on economic policy known at home and abroad, and his consistent calls for more aggressive bond buying by the central bank. Reuters